Reason for Index Fund and Index Disconnect
My understanding of index funds like QQQ and SPY, is that they are built to mirror the index movements from which they are created. And as is typically the case, the index funds move with the index both in direction and magnitude. But there have been a number of times that the index and a corresponding index fund have moved quite differently. The most recent large difference that I noticed was a couple of days ago on the 24th of December where QQQ was down ~2% and the Nasdaq was down 5%.
Why was there such a difference in the movement of QQQ and Nasdaq in this case, and why does this occasionally happen?
stocks index-fund
asked 12 hours ago
The Nightman
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My understanding of index funds like QQQ and SPY, is that they are built to mirror the index movements from which they are created. And as is typically the case, the index funds move with the index both in direction and magnitude. But there have been a number of times that the index and a corresponding index fund have moved quite differently. The most recent large difference that I noticed was a couple of days ago on the 24th of December where QQQ was down ~2% and the Nasdaq was down 5%.
Why was there such a difference in the movement of QQQ and Nasdaq in this case, and why does this occasionally happen?
stocks index-fund
asked 12 hours ago
The Nightman
1084
New contributor
The Nightman is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
add a comment |
My understanding of index funds like QQQ and SPY, is that they are built to mirror the index movements from which they are created. And as is typically the case, the index funds move with the index both in direction and magnitude. But there have been a number of times that the index and a corresponding index fund have moved quite differently. The most recent large difference that I noticed was a couple of days ago on the 24th of December where QQQ was down ~2% and the Nasdaq was down 5%.
Why was there such a difference in the movement of QQQ and Nasdaq in this case, and why does this occasionally happen?
stocks index-fund
asked 12 hours ago
The Nightman
1084
New contributor
The Nightman is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
My understanding of index funds like QQQ and SPY, is that they are built to mirror the index movements from which they are created. And as is typically the case, the index funds move with the index both in direction and magnitude. But there have been a number of times that the index and a corresponding index fund have moved quite differently. The most recent large difference that I noticed was a couple of days ago on the 24th of December where QQQ was down ~2% and the Nasdaq was down 5%.
Why was there such a difference in the movement of QQQ and Nasdaq in this case, and why does this occasionally happen?
stocks index-fund
stocks index-fund
asked 12 hours ago
The Nightman
1084
New contributor
The Nightman is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
asked 12 hours ago
The Nightman
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Check out our Code of Conduct.
asked 12 hours ago
The Nightman
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asked 12 hours ago
The Nightman
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asked 12 hours ago
The Nightman
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2 Answers
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From what I see, the NAZ composite was down 2.21% on 12/24 and the QQQ was down 2.76%.
Note that the QQQ is an ETF and it can trade at a premium or a discount due to excessive buying or selling pressure. Given that the market lost ~3% on 12/24, it's a likely culprit.
The other factor is that the QQQ went ex-div for $0.421 on 12/24 and the share holder will receive that on the Payable Date. When you figure that into the QQQ loss, it about halves the discrepancy.
answered 11 hours ago
Bob Baerker
14.6k11948
3
Probably worth highlighting that there are two major Nasdaq indexes, the Nasdaq composite, and the Nasdaq-100. QQQ is based on the Nasdaq-100 (^NDX) which fell 2.43% on 12/24. So that reduces the discrepancy even further.
– Ben Voigt
10 hours ago
He said composite. I calculated composite. Good point about the N-100. When you factor in the dividend and compare, the discrepancy is about 5 basis points which isn't far from a rounding error :->)
– Bob Baerker
10 hours ago
3
He didn't say composite, neither by the word nor by its ticker. The only appearances of "composite" are in your answer and my comment.
– Ben Voigt
10 hours ago
1
Sorry, my bad. I'm not multi-taking well today :->)
– Bob Baerker
10 hours ago
add a comment |
An ETF is only somewhat open-ended in that shares are created or dissolved only on certain conditions of large orders. And so the ETF can trade at a premium or discount based on demand of the stock market.
An open-ended mutual fund trades only at net-asset-value and there is no premium or discount because shares are created or dissolved based on every transaction but accounted at the end of the day. The open-end mutual fund is ultimately only available from the investment company that created the fund. Now a stock broker can get an open-end mutual fund as an intermediary.
A closed-end mutual fund has a set number of shares that doesn't change except in some conditions of dividend re-investment. The closed-end mutual fund trades on the stock market and at a premium or discount to net-asset-value. Since a closed-end mutual fund does not face liquidation requirements then it can easily use more leverage and hedging or hold less liquid securities.
And so only an open-end mutual fund should exactly match an index that it is based on.
answered 11 hours ago
S Spring
1412
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Great answer, welcome!
– quid
11 hours ago
add a comment |
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2 Answers
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2 Answers
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oldest
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From what I see, the NAZ composite was down 2.21% on 12/24 and the QQQ was down 2.76%.
Note that the QQQ is an ETF and it can trade at a premium or a discount due to excessive buying or selling pressure. Given that the market lost ~3% on 12/24, it's a likely culprit.
The other factor is that the QQQ went ex-div for $0.421 on 12/24 and the share holder will receive that on the Payable Date. When you figure that into the QQQ loss, it about halves the discrepancy.
answered 11 hours ago
Bob Baerker
14.6k11948
3
Probably worth highlighting that there are two major Nasdaq indexes, the Nasdaq composite, and the Nasdaq-100. QQQ is based on the Nasdaq-100 (^NDX) which fell 2.43% on 12/24. So that reduces the discrepancy even further.
– Ben Voigt
10 hours ago
He said composite. I calculated composite. Good point about the N-100. When you factor in the dividend and compare, the discrepancy is about 5 basis points which isn't far from a rounding error :->)
– Bob Baerker
10 hours ago
3
He didn't say composite, neither by the word nor by its ticker. The only appearances of "composite" are in your answer and my comment.
– Ben Voigt
10 hours ago
1
Sorry, my bad. I'm not multi-taking well today :->)
– Bob Baerker
10 hours ago
add a comment |
From what I see, the NAZ composite was down 2.21% on 12/24 and the QQQ was down 2.76%.
Note that the QQQ is an ETF and it can trade at a premium or a discount due to excessive buying or selling pressure. Given that the market lost ~3% on 12/24, it's a likely culprit.
The other factor is that the QQQ went ex-div for $0.421 on 12/24 and the share holder will receive that on the Payable Date. When you figure that into the QQQ loss, it about halves the discrepancy.
answered 11 hours ago
Bob Baerker
14.6k11948
3
Probably worth highlighting that there are two major Nasdaq indexes, the Nasdaq composite, and the Nasdaq-100. QQQ is based on the Nasdaq-100 (^NDX) which fell 2.43% on 12/24. So that reduces the discrepancy even further.
– Ben Voigt
10 hours ago
He said composite. I calculated composite. Good point about the N-100. When you factor in the dividend and compare, the discrepancy is about 5 basis points which isn't far from a rounding error :->)
– Bob Baerker
10 hours ago
3
He didn't say composite, neither by the word nor by its ticker. The only appearances of "composite" are in your answer and my comment.
– Ben Voigt
10 hours ago
1
Sorry, my bad. I'm not multi-taking well today :->)
– Bob Baerker
10 hours ago
add a comment |
From what I see, the NAZ composite was down 2.21% on 12/24 and the QQQ was down 2.76%.
Note that the QQQ is an ETF and it can trade at a premium or a discount due to excessive buying or selling pressure. Given that the market lost ~3% on 12/24, it's a likely culprit.
The other factor is that the QQQ went ex-div for $0.421 on 12/24 and the share holder will receive that on the Payable Date. When you figure that into the QQQ loss, it about halves the discrepancy.
answered 11 hours ago
Bob Baerker
14.6k11948
From what I see, the NAZ composite was down 2.21% on 12/24 and the QQQ was down 2.76%.
Note that the QQQ is an ETF and it can trade at a premium or a discount due to excessive buying or selling pressure. Given that the market lost ~3% on 12/24, it's a likely culprit.
The other factor is that the QQQ went ex-div for $0.421 on 12/24 and the share holder will receive that on the Payable Date. When you figure that into the QQQ loss, it about halves the discrepancy.
answered 11 hours ago
Bob Baerker
14.6k11948
answered 11 hours ago
Bob Baerker
14.6k11948
answered 11 hours ago
Bob Baerker
14.6k11948
answered 11 hours ago
Bob Baerker
14.6k11948
14.6k11948
3
Probably worth highlighting that there are two major Nasdaq indexes, the Nasdaq composite, and the Nasdaq-100. QQQ is based on the Nasdaq-100 (^NDX) which fell 2.43% on 12/24. So that reduces the discrepancy even further.
– Ben Voigt
10 hours ago
He said composite. I calculated composite. Good point about the N-100. When you factor in the dividend and compare, the discrepancy is about 5 basis points which isn't far from a rounding error :->)
– Bob Baerker
10 hours ago
3
He didn't say composite, neither by the word nor by its ticker. The only appearances of "composite" are in your answer and my comment.
– Ben Voigt
10 hours ago
1
Sorry, my bad. I'm not multi-taking well today :->)
– Bob Baerker
10 hours ago
add a comment |
3
Probably worth highlighting that there are two major Nasdaq indexes, the Nasdaq composite, and the Nasdaq-100. QQQ is based on the Nasdaq-100 (^NDX) which fell 2.43% on 12/24. So that reduces the discrepancy even further.
– Ben Voigt
10 hours ago
He said composite. I calculated composite. Good point about the N-100. When you factor in the dividend and compare, the discrepancy is about 5 basis points which isn't far from a rounding error :->)
– Bob Baerker
10 hours ago
3
He didn't say composite, neither by the word nor by its ticker. The only appearances of "composite" are in your answer and my comment.
– Ben Voigt
10 hours ago
1
Sorry, my bad. I'm not multi-taking well today :->)
– Bob Baerker
10 hours ago
3
3
Probably worth highlighting that there are two major Nasdaq indexes, the Nasdaq composite, and the Nasdaq-100. QQQ is based on the Nasdaq-100 (^NDX) which fell 2.43% on 12/24. So that reduces the discrepancy even further.
– Ben Voigt
10 hours ago
Probably worth highlighting that there are two major Nasdaq indexes, the Nasdaq composite, and the Nasdaq-100. QQQ is based on the Nasdaq-100 (^NDX) which fell 2.43% on 12/24. So that reduces the discrepancy even further.
– Ben Voigt
10 hours ago
He said composite. I calculated composite. Good point about the N-100. When you factor in the dividend and compare, the discrepancy is about 5 basis points which isn't far from a rounding error :->)
– Bob Baerker
10 hours ago
He said composite. I calculated composite. Good point about the N-100. When you factor in the dividend and compare, the discrepancy is about 5 basis points which isn't far from a rounding error :->)
– Bob Baerker
10 hours ago
3
3
He didn't say composite, neither by the word nor by its ticker. The only appearances of "composite" are in your answer and my comment.
– Ben Voigt
10 hours ago
He didn't say composite, neither by the word nor by its ticker. The only appearances of "composite" are in your answer and my comment.
– Ben Voigt
10 hours ago
1
1
Sorry, my bad. I'm not multi-taking well today :->)
– Bob Baerker
10 hours ago
Sorry, my bad. I'm not multi-taking well today :->)
– Bob Baerker
10 hours ago
add a comment |
An ETF is only somewhat open-ended in that shares are created or dissolved only on certain conditions of large orders. And so the ETF can trade at a premium or discount based on demand of the stock market.
An open-ended mutual fund trades only at net-asset-value and there is no premium or discount because shares are created or dissolved based on every transaction but accounted at the end of the day. The open-end mutual fund is ultimately only available from the investment company that created the fund. Now a stock broker can get an open-end mutual fund as an intermediary.
A closed-end mutual fund has a set number of shares that doesn't change except in some conditions of dividend re-investment. The closed-end mutual fund trades on the stock market and at a premium or discount to net-asset-value. Since a closed-end mutual fund does not face liquidation requirements then it can easily use more leverage and hedging or hold less liquid securities.
And so only an open-end mutual fund should exactly match an index that it is based on.
answered 11 hours ago
S Spring
1412
New contributor
S Spring is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
Great answer, welcome!
– quid
11 hours ago
add a comment |
An ETF is only somewhat open-ended in that shares are created or dissolved only on certain conditions of large orders. And so the ETF can trade at a premium or discount based on demand of the stock market.
An open-ended mutual fund trades only at net-asset-value and there is no premium or discount because shares are created or dissolved based on every transaction but accounted at the end of the day. The open-end mutual fund is ultimately only available from the investment company that created the fund. Now a stock broker can get an open-end mutual fund as an intermediary.
A closed-end mutual fund has a set number of shares that doesn't change except in some conditions of dividend re-investment. The closed-end mutual fund trades on the stock market and at a premium or discount to net-asset-value. Since a closed-end mutual fund does not face liquidation requirements then it can easily use more leverage and hedging or hold less liquid securities.
And so only an open-end mutual fund should exactly match an index that it is based on.
answered 11 hours ago
S Spring
1412
New contributor
S Spring is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
Great answer, welcome!
– quid
11 hours ago
add a comment |
An ETF is only somewhat open-ended in that shares are created or dissolved only on certain conditions of large orders. And so the ETF can trade at a premium or discount based on demand of the stock market.
An open-ended mutual fund trades only at net-asset-value and there is no premium or discount because shares are created or dissolved based on every transaction but accounted at the end of the day. The open-end mutual fund is ultimately only available from the investment company that created the fund. Now a stock broker can get an open-end mutual fund as an intermediary.
A closed-end mutual fund has a set number of shares that doesn't change except in some conditions of dividend re-investment. The closed-end mutual fund trades on the stock market and at a premium or discount to net-asset-value. Since a closed-end mutual fund does not face liquidation requirements then it can easily use more leverage and hedging or hold less liquid securities.
And so only an open-end mutual fund should exactly match an index that it is based on.
answered 11 hours ago
S Spring
1412
New contributor
S Spring is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
An ETF is only somewhat open-ended in that shares are created or dissolved only on certain conditions of large orders. And so the ETF can trade at a premium or discount based on demand of the stock market.
An open-ended mutual fund trades only at net-asset-value and there is no premium or discount because shares are created or dissolved based on every transaction but accounted at the end of the day. The open-end mutual fund is ultimately only available from the investment company that created the fund. Now a stock broker can get an open-end mutual fund as an intermediary.
A closed-end mutual fund has a set number of shares that doesn't change except in some conditions of dividend re-investment. The closed-end mutual fund trades on the stock market and at a premium or discount to net-asset-value. Since a closed-end mutual fund does not face liquidation requirements then it can easily use more leverage and hedging or hold less liquid securities.
And so only an open-end mutual fund should exactly match an index that it is based on.
answered 11 hours ago
S Spring
1412
New contributor
S Spring is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
edited 11 hours ago
answered 11 hours ago
S Spring
1412
New contributor
S Spring is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
answered 11 hours ago
S Spring
1412
answered 11 hours ago
S Spring
1412
1412
New contributor
S Spring is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
New contributor
S Spring is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
S Spring is a new contributor to this site. Take care in asking for clarification, commenting, and answering.
Check out our Code of Conduct.
Great answer, welcome!
– quid
11 hours ago
add a comment |
Great answer, welcome!
– quid
11 hours ago
Great answer, welcome!
– quid
11 hours ago
Great answer, welcome!
– quid
11 hours ago
add a comment |
The Nightman is a new contributor. Be nice, and check out our Code of Conduct.
The Nightman is a new contributor. Be nice, and check out our Code of Conduct.
The Nightman is a new contributor. Be nice, and check out our Code of Conduct.
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